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THE SUNDAY TELEGRAPH: Gazprom leans on Shell to renegotiate

THE SUNDAY TELEGRAPH: Gazprom leans on Shell to renegotiate

“Gazprom, the Russian gas giant, is demanding that Royal Dutch/Shell, the Anglo-Dutch oil major, renegotiates the terms of a planned asset swap because of the soaring costs of Sakhalin-2, a flagship project.”: “…Shell was forced to admit last week that the cost of the Sakhalin-2 gas field project had overrun by an estimated $10bn and could now cost a staggering $20bn.”

Sunday 17 July 2005

By Andrew Murray-Watson (Filed: 17/07/2005)

Gazprom, the Russian gas giant, is demanding that Royal Dutch/Shell, the Anglo-Dutch oil major, renegotiates the terms of a planned asset swap because of the soaring costs of Sakhalin-2, a flagship project.

Under a deal with Shell signed two weeks ago, Gazprom had agreed to take a 25 per cent stake in the huge Sakhalin-2 gas field on Russia’s Pacific coast.

In exchange, Shell would take a 50 per cent stake in the Zapolyarnoye field in Siberia, the world’s fifth largest gas deposit.

However, Gazprom is now demanding that the deal is renegotiated after Shell was forced to admit last week that the cost of the Sakhalin-2 gas field project had overrun by an estimated $10bn and could now cost a staggering $20bn.

Gazprom argues that the rising costs of the Sakhalin field and the anticipated delays in making the first shipments of gas have lowered the value of the project.

Analysts believe that Shell will be forced to make a series of concessions to Gazprom if it is to retain the 50 per cent stake in Zapolyarnoye.

Last week, Jeroen van der Veer, the chief executive of Shell, said that a “framework” for the deal with Gazprom had been agreed, but added that the details still had to be hammered out.

Sakhalin-2 is a key project in Shell’s exploration strategy as the company seeks new sources of oil and gas and to replace reserves lost in recent years. It is estimated that 1bn barrels of oil can be recovered as well as 1.3 trillion cubic feet of gas.

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